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Legal wrangling as Inyx units are deemed insolvent

By Kirsty Barnes

- Last updated on GMT

Related tags Vice president of the united states Vice president

Almost the entire international operations of specialty pharma
contract manufacturer Inyx is facing insolvency and the company is
locked in a legal battle with its principal financier.

The North America-based firm operates through a number of wholly owned subsidiaries and employs a total of over 575 people in North and South America and Europe. The troubles first kicked off when on 28 June it was announced that the entire UK operations of Inyx were put into administration by Westernbank Puerto Rico due to insolvency, i.e. they owe more money than they are capable of paying back. Westernbank sent a letter to the two manufacturing firms owned by Inyx Inc., Ashton Pharmaceuticals and Inyx Pharma, along with Inyx Europe, which is an intermediate holding company that owns and operates Ashton Pharma, alleging that the three firms "were in default under the loan and security agreements,"​ it was reported in the Securities and Exchange Commission (SEC) filing. Roy Bailey and David Duggins from Ernst & Young (EY) were then appointed by the UK courts as joint administrators to the three companies. Suit, and countersuit​ Inyx Inc. denied that was in default of the loan and on June 29, Inyx Inc. and Inyx USA, Ltd., along with company chairman and CEO Dr Jack Kachkar and his wife, filed suit against Westernbank in New York State Supreme Court, asserting "various causes of action seeking no less than $500m in compensatory damages, as well as punitive damages,"​ the SEC filing said. The complaint alleges, among other things, that Westernbank "acted in bad faith and in a commercially unreasonable manner by blocking the flow of funds from the Inyx Parties' customers to the company, and preventing the Inyx Parties from paying their debts." ​ On the same day, meanwhile, Westernbank issued Inyx with a demand for the immediate payment by the company and its UK and US subsidiaries for all outstanding loans and all other obligations claimed under the loan documents with the bank. A flood of high level management resignations at Inyx Inc. ensued. Effective June 29, Rima Goldshmidt, vice president, treasurer and corporate secretary, resigned; the following day Douglas Brown resigned as a director, chairman of the compensation committee and member of the audit committee; then as of July 1, Peter Littmann and Roger Harrison both stepped down as directors of the company and Joseph Rotmil resigned as director, chairman of the audit committee and member of the compensation committee. The SEC filing states that Inyx Inc. "believes the resignations of Brown, Harrison, Littman and Rotmil were occasioned by the controversy with the company's lender and the desire to avoid becoming involved in the litigation that has been commenced by the company." ​ Meanwhile, on July 1, Jay Green, the company's vice president, treasurer and corporate secretary was elected as a director to fill a vacancy on the Board. More resignations then emerged the following day, with David Zinn resigning as the company's vice president of finance and principal accounting officer; and president and director Steven Handley and Colin Hunter, executive vice president, chief scientific officer, and director, both resigning as directors. "The company believes that the resignations of Handley and Hunter were due to the possible conflict of interest they may face in serving on the Board while continuing to manage the UK Companies under the control of the Administrator,"​ said the SEC filing. Meanwhile, on the same day, July 2, the firm's non-UK subsidiaries, Inyx USA Ltd. (actually based in Puerto Rico), and Exaeris Inc. were voluntarily placed by the parent firm Inyx Inc. into Chapter 11 bankruptcy protection. The firm said it did so "as an additional measure to protect the company against further potential damaging actions by Westernbank."​ At this point it is understood that the holding company Inyx, Inc. itself, is not part of the Chapter 11 filings, nor is the company's small business development and support services division, Inyx Canada. Meanwhile, shortly after, on July 6, Westernbank then launched a lawsuit of its own in the Puerto Rico District Court in San Juan, against a raft of senior Inyx management. The nature of the lawsuit is allegedly for "Racketeer Influenced and Corrupt Organizations,"​ under section 18 of the 1964 Racketeering (RICO) Act, according to the court filing. $240m in damages are also being sought. The case, titled Puerto Rico v. Kachkar et al. is being brought against Dr Kachkar; Steve Handley; Colin Hunter; Rima Goldschmidt; and executive vice president and director of corporate development, Jay M Green; along with the companies themselves, Inyx Inc., Inyx Pharma Ltd, Inyx Europe Ltd, Inyx Canada Inc., Ashton Pharmaceutical Ltd. For the time being at least, all Inyx' operations are continuing to run, albeit under considerable stress, and their future is to say the least, uncertain. On the block ​ Ashton Pharma was Inyx Inc's largest subsidiary, based in Ashton-under-Lyne, Lancashire, while Inyx Pharma is located Runcorn, Cheshire, and both employ a total of 420 people between them. "Both facilities are good profitable businesses and we are continuing to trade them on a 'business as usual' basis while we explore the possibility of a sale of the operations as going concerns,"​ said Duggins. Any buyers would take on the assets and employee liabilities, while the administrators would pay off the companies' debts using the money from the sale, another EY spokesperson told Outsourcing-Pharma.com on Friday. "We are trying to sell both companies, preferably to the same purchaser,"​ said the spokesperson. "Meanwhile, the two firms are continuing production and fulfilling their outsourcing contracts and we [as the administrators] are keeping their customers informed of the situation." ​ Many of them will have cause for concern. For example, during the first quarter of this year Inyx Pharma began a three-year contract to be the exclusive manufacturer of Canadian firm Generex's proprietary Glucose RapidSpray, a new confectionary glucose oral-spray product. Under the deal, which also includes packaging and supply, Inyx is the sole producer of Glucose RapidSpray in worldwide markets, with the exceptions of Canada and the Republic of Ecuador. Earlier this year the firm also entered into a collaboration with BioProgress, based in Cambridge, UK, to provide assistance to broadly commercialise its TABWRAP technology, a patented, high-speed continuous process for delivering tablets or caplets in an ingestible or edible film sheet. Meanwhile, contracts involving Ashton Pharma include a three-year arrangement with Acorus Therapeutics to whereby Ashton is manufacturing and packaging its new solid-dose product for the treatment of various forms of epilepsy and essential tremor, in a variety of dosages and packaging formats for distribution in more than 10 Western European and South American markets. According to the SEC filing, Dr Kachkar intends to provide some personal financing to Inyx Inc. and its US Companies as part of a reorganisation that has been approved by the Bankruptcy Court in order to enable them to continue their operations and business development activities. Inyx USA, which serves markets in North and South America, is based in Manati, Puerto Rico, and operates a pharmaceuticals production centre that specialises in the development and manufacture of inhalation therapy, dermatology and topical pharmaceutical products. Exaeris, based in Philadelphia, only commenced formal operations in January 2006, and focuses on the commercialisation and marketing of niche or enhanced pharmaceutical products. It has been using sales reps from a contract sales organisation. Dr Kachkar's interests in these operations run deep. He has been making plans since November 2006, when he first approached management with his plan to buy the company's entire shares in an all-cash offer, taking the company private, "in a transaction that would be in the best interests of all of the company's stockholders."​ The move was supported by Inyx's entire senior management team in April and since then the board of directors, with the assistance of an independent investment-banking firm it selected, has been in the process of evaluating the fairness of the going-private offer. It expected to complete its evaluation after the company finally reported its audited operating results for 2006, after which point the special committee was to issue a recommendation to Inyx stockholders, who would be asked to vote on the offer. The capital for this offer was to be provided by a partnership being formed by Dr Kachkar with an "outside investor,"​ which was also intended to provide the funding for Inyx to pay back the loans, totalling approximately $130m, owed to Westernbank, Inyx reported at the time. But two road blocks have since arisen. First of all, in December the firm had announced that it would need to restate previously issued financial statements for the quarters ended March 31, June 30 and Sept. 30, 2006, and it subsequently delayed indefinitely filing its annual report on Form 10-K with the SEC for the fiscal year ended Dec. 31, 2006. As a result of the delay, Inyx was de-listed and the latest SEC filing by the firm on July 5 indicates that it still has not filed the Annual Report and it will be delayed even further. Now, following the latest developments, the firm has issued a subsequent statement saying that "the company's management team, led by Dr Kachkar, will continue to attempt to pursue a transaction to buy out all unaffiliated shareholders, as announced on March 26, 2007, although any such transaction may be postponed while resolutions to the matters discussed above are being pursued."​ It seems that Dr Kachkar is intent on taking ownership of the beleaguered firm, although no-one from Inyx or its subsidiaries responded to Outsourcing-Pharma.com's requests for interview. More insight into the circumstances surrounding Inyx' current woes, and the company's uncertain future, will be published in the next edition of Outsourcing-Pharma.com.

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